Abstract:

The frontiers of digital innovation are vast. And the ride into the great unknown of digital innovation can be fraught with challenges. The auto industry is a highly competitive market where digital innovation plays an important role in each player’s strategic differentiation. New research by SMU Cox Information Technology Professor Ulrike Schultze and Ph. D. student Lena Hylving (at Viktoria Swedish ICT, in Gothenburg, Sweden) offers insight into some of the challenges faced and overcome by an auto manufacturer searching for competitive advantage as cars sport more digital features.

The frontiers of digital innovation—meaning the
incorporation of digital services into physical objects —are vast. Just compare the single-utility rotary-style
telephone to today’s smart-phone, which serves as email client, camera, alarm
clock, flash light, and oh yes, a phone.
And the ride into the great unknown of digital innovation can be fraught
with challenges, especially for established manufacturing firms that have organizational
routines and structures optimized for the production of physical products.
Organizational shakeups as well as scaled-back or delayed product launches are
common, potentially losing companies time, money and valuable market share.

The auto industry is a highly competitive market where digital
innovation plays an important role in each player’s strategic differentiation.
New research by SMU Cox Information Technology Professor Ulrike Schultze and
Ph. D. student Lena Hylving (at Viktoria Swedish ICT, in Gothenburg, Sweden) offers
insight into some of the challenges faced and overcome by an auto manufacturer
searching for competitive advantage through the increasing digitalization of
the vehicle.

The car’s increasing digital capabilities are made apparent
to drivers through the enhanced car-related services they now receive (e.g., low
tire pressure alerts). This research focuses on the evolution of the instrument
cluster in the car’s dashboard, also referred to as the Human-Machine
Interface, or HMI. The HMI is the connection point between car and driver.

Why focus on the HMI? Schultze explains, "This is how
you as a consumer know the product has changed. HMI is the face of the product;
it is where digital innovation becomes manifest. It’s how you become aware you
have additional functionality available to you. By implication, the HMI is key
to communicating digital innovations. It encompasses material components such as
touch screens or volume buttons, as well as the information content that is
displayed."

The study

Relying on a case study of a single auto manufacturer that
goes by the pseudonym “CarCorp,” the authors compared three different HMI projects
over roughly a ten-year period. Development of the first project’s instrument
cluster was begun in 2004 and the rollout of the third project’s dashboard
design is planned for 2014.

Each project represents an increase in digitalization. For
example, the first instrument cluster sported two 2.5” LCD screens, whose low
resolution allowed for only textual information displays, such as outside
temperature, text alerts such as ‘service is due’. In contrast, the latest
instrument cluster is comprised of a single 12.5” high-resolution LCD screen
that is capable of displaying video and personalized HMIs. (See video links at
end of paper for digital instrument examples.) Additionally, with each
evolution of the instrument cluster, more information from the car’s multiple
sensors became available to the driver and existing sensor data was combined in
novel ways. For example, to provide a more accurate fuel tank reading, data
from the fuel tank sensor was combined with data from the incline sensor among
others in the later designs of the instrument cluster.

The objective of the research is to trace the implications
of digital innovation on the architecture of the firm’s products, as well as on
the firm’s organizational infrastructure. Typically, in the manufacture of
physical goods, the modular architecture of the product is mirrored by its
organizational structure. For example, the automaker's organizational group
“Centerstack and Climate Control” handles the development of the center stack
(the console between the driver’s and front passenger’s seat), which includes all
the climate controls inside the car. The digitization of products challenges
this logic, however.

The research thus poses a number of questions: How do the
product and organizational architecture evolve and why? And what is the most
effective way for manufacturers to organize in the face of digital innovation?
In this case, a single device, the display screen in a car’s instrument cluster,
is leveraged to provide a plethora of services, including apps sold by third
parties.

"Traditional companies, in this case an auto firm, have
certain organizing logics in place," notes Schultze. What the researchers found is that the
transition to organizational structures, processes, routines and culture that
enable digital innovation is challenging. Schultze continues, "A variety
of issues exist in terms of physical product architecture (technology) and organizational
infrastructure. It also encompasses how the organization sees its identity. Are
we a traditional car company, a software company, or what?"

Hylving, who worked for an HMI vendor prior to embarking on
her PhD studies, points out that carmakers are increasingly trying to catch up
to the mobile device and apps markets. "Before there was automaker-to-automaker
competition; now that the car becomes Internet-enabled, they are also competing
with digital service providers such as Google, Spotify, Pandora and consumer
electronics. The car is increasingly regarded as a technology platform just
like Google and Facebook.” In fact, the third CarCorp HMI project that the
researchers studied openly embraced the concept of technology platform in its
design.

Clearly Demarcated
Layers

Prior theory on digital innovation suggests that a
manufacturer of physical goods needs to evolve their modular product
architecture to one that is both modular and layered. Layered architecture
pervades digital products, including the Internet and technology platforms such
as Google and Facebook, which rely on user-generated content to complete and
add value to their technological service, says Schultze.

The layer metaphor implies that, despite the ability to
separate between the different tiers in the product stack, there is a
hierarchical dependence between the different strata that make up a product’s
architecture. To illustrate: a Facebook app cannot function without the
Facebook platform as it draws on the platform’s databases through the published
interface or API (application programming interface); however, Facebook can
function without the app.

A simplified view of the digital product stack reveals four
layers: the bottom-most or device layer
encompasses the physical product. In the case of the car, this could be the
fuel tank and its sensors that generate data. The network layer of the digital product stack is responsible for the connection
between the device layer and the next layer up, namely the service layer, which consists of programs that convert the data
into information that can be displayed on the driver dashboard. The programs in
the service layer may offer drivers additional features, such as the ability to
customize the console with respect to its look, feel and what information is
displayed. The top-most strata of the stack is the content layer, which essentially corresponds to the HMI. In the
case of the car, this includes the speedometer and tachometer dials on the
driver console.

In order to enhance the adaptability and scalability of
digitalized products, it is important to have strict boundaries between the
layers in the stack. In this way,
changes in the device layer, like an upgrade of the fuel sensor, should not
require a change in the network layer. To accomplish this degree of uncoupling
between the digitized product’s layers, well-defined boundaries and interfaces
between each tier are required. The automaker needed to integrate this layered
architecture approach within its organizational structure.

The research highlights that a chief accomplishment of each
iteration of the CarCorp HMI was the production of clearly-defined boundaries
between the layers of the product's stack. During the first project, where the
content-service layer distinction was not yet established, the integration
challenges were formidable and despite a time overrun of a month, the project
did not deliver fully on all anticipated functionality.

However, CarCorp’s first foray into digital innovation did
generate a product specification that clearly demarcated the content from the
service layer. The second project solidified this content-service layer
boundary by embedding it in an HMI design tool. Additionally, a protocol
defining the interface between the network and the service layer was developed.
By the time the third HMI project was begun, the layered modular architecture
was mostly in place, making it possible to add Internet connectivity to the
network layer and to incorporate multiple third-party app developers into the
service layer without too much disruption.

“After years of research that has vilified organizational
silos, it seems a little counter-intuitive to argue for clearly bounded
layers,” Schultze points out. “Like the idiom ‘good fences make good neighbors,’
it seems somewhat contradictory. But given the dependence of higher-level
layers on lower-level ones in digital products, it’s clear that demarcations of
responsibilities in not only each layer of a product’s architecture but also in
the organizational unit responsible for maintaining it, is desirable.”

Toggling between Technological
and Organizational Change

The research further highlights that changes in the product’s
material architecture need to be accompanied by changes in the organization’s infrastructure.
Schultze explains, "Digital innovation is not just a matter of developing
a layered product architecture in terms of protocols and APIs, but it is also a
matter of the organizational infrastructure evolving to match the material
one."

Maintaining organizational structures and routines that
reflect the logic of a traditional modular production environment will likely
cause digital innovations to fail. This was the case in CarCorp’s first foray
into digital innovation. Schultze explains, "The functional organization
appropriate for the manufacture of modular components made it difficult to
integrate functionality into the digital instrument cluster. Since the owners of
a car module that provided sensor data to the HMI (e.g., fuel tank, engine,
navigation) had traditionally determined what information they wanted included
in the driver console, the development of the content-service layer interface
was done for each of these physical components." This was a tedious and
fragmented process that led to many cascading errors.

In contrast, during the development of the third project,
CarCorp’s HMI group had risen in prominence, growing in both size and diversity
of expertise. Previously receiving design assignments from distinct functional
groups, the HMI group now spearheaded the design of the instrument cluster.
They organized in cross-functional teams to develop a coherent design that leveraged
the full capacity of the single LCD screen. Interacting in these
cross-functional teams led to the innovative combination of the multiple
sensors’ data that generated new information displays.

Sometimes an organization leads change, but in this case the
technology led. "The material changes or the technology desired by
consumers drove the organizational change in this case," says Schultze.

The paper "Increasing Digitalization in Product
Innovation: Material and Organizational Implications" is authored by SMU
Cox's Information Technology professor Ulrike Schultze and Lena Hylving. It
will be submitted to the International Conference on Information Systems
Conference, which will be held in Milan, Italy, in December 2013.